Council passes 1% utility tax

Mukilteo residents will see an added fee on their utility bills starting in October.

The city will be charging the water and sewer districts serving Mukilteo a fee to be passed on to its customers as a 1 percent tax.

Finance Director Scott James said the utility tax will add about $11 to the average homeowner’s utility bills a year, effective Oct. 1. It will feed an estimated $29,600 into the city’s general fund in 2012.

Mukilteo City Council voted 4-2 on July 2 to approve the tax, with Councilmembers Kevin Stoltz and Steve Schmalz voting against it. Council President Richard Emery was absent.

“We have fixed income residents that have to pay, the seniors that have to pay, who don’t get an increase in their Social Security, but they get an increase in their water bill, their electric bill, their cable bill,” Schmalz said. “I think us piling on another tax is wrong.”

State law allows cities to levy and collect a “franchise fee” from water-sewer districts operating within city limits.

Additional 1 percent increases may follow in 2013 and 2014, or up to a 4 percent tax within the next five years, said City Administrator Joe Hannan. That equals $11 more each year, James said.

James estimates that, with the additional 1 percent increases, utility tax revenues would be $237,000 in 2013 and $356,000 in 2014. The increases would need to be approved by council.

The city may tax a maximum of 6 percent of the sewer rates and charges collected each month. That cost is passed on to the district’s customers.

“I’ve used the term ‘utility tax’ several times, and it’s confusing [because] the city is not authorized to impose a utility tax on a special district,” Hannan said. “However, we can by agreement have a franchise payment.”

The fee, equal to 1 percent of a customer’s monthly charge, will add 93 cents to the monthly charge of $93.32 for a single-family home – $42.42 for water, $50.90 for sewer – or a total $11.16 in 2012, James said.

With declining revenues, the franchise fee gives the city another option to continue offering the same level of services, Hannan said.

“I’m not afraid to call it a ‘tax,’” said Council Vice President Jennifer Gregerson. “It is a tax, it will be passed on by the water and sewer districts to our residents, and I acknowledge that it’s something we approved in 2011.”

“It was a difficult choice to make, but I also don’t want to shy away the fact that I know it is only 1 percent. That’s 93 cents a month.”

The city was in negotiations over the franchise agreement for 18 months with both the Mukilteo Water and Wastewater District and the Alderwood Water and Wastewater District, which provide water and sewer services in Mukilteo.

The tax coincides with 5 percent rate increases in 2012, 2013 and 2014 by the Mukilteo district.

A 2 percent utility tax was included in the 2012 budget proposal, but the council voted last year to reduce it to 1 percent. As a compromise, they also passed a 3 percent property tax increase.

The city now has a 20-year agreement with the Mukilteo district, which includes a cap of 6 percent. Alderwood’s agreement is for 25 years and has no cap, allowing for more increases should state law change.

Council watcher Charlie Pancerzewski said he finds it interesting that the city is calling the franchise agreement a “fee” and not a “tax.” No matter what you call it, he said, it still allows the city to collect more money from residents.

“I’m concerned with the taxing and spending actions of the council,” he said. “You continue to say you can’t cut expenses, you continue to tell people that the city is in great financial shape, but if we’re in great financial shape, then we wouldn’t have to raise taxes."